In a follow up to this post from two days ago, I heard back from the copyright office!
Here's what I wrote:
My question relates to what I believe to be a derivative work. I've just read through Circular 92 and Circular 14. I'm a crocheter, and I design and make dolls to sell. I've been asked, as part of my business, if I would be willing to do commissions in the form of creating dolls or the patterns to make dolls from existing intellectual properties. For example, I've been asked to make a crochet pattern for the creation of a Swedish Chef doll - a character from the Muppet Show. In order to make this doll, I look at photographs of the character in question, and then I use my knowledge of crochet to write a completely original pattern, which can in turn be used to crochet a doll that resembles the Swedish Chef. Based on what I've read today, I believe that this pattern (and any doll that I made from it) would be a derivative work, and therefore I would need permission from the copyright holder of the Muppet Show in order to have a claim to the copyright on what I created and thus also to sell this derivative work. Is this a correct interpretation? If not, how would something like this work?
The answer is simple and straightforward:
"Yes, you are correct. A new work that is based on or incorporates a preexisting work can be considered a derivative work. Generally, the copyright owner of the original work has the right to authorize the creation of a derivative work."
Ya know, everyone, I'm a little shocked that this is a continual debate in craft forums I see. It seems pretty straightforward, and I solved in two hours of research and a single e-mail. To sum up:
If you live in the United States, and you wish to make for the purposes of sale a pattern or doll that is a representation of a current character, for legal purposes this is called a derivative work. To create this sort of derivative work for purposes of selling it, you would need permission from the original copyright holder.
Yes, copyright holders usually look the other way. Yes, some give blanket permission. Yes, by creating a pattern you have created something new and different and interesting and cool and you do get to have the rights to the pattern that you created - but that doesn't appear to change that if you want to sell it, you would need permission, end of story.
I know that this won't end any debates for other people, but for me, it does. I am going to finish the first project I've ever taken on that violates these rules, and then I am never going to do so again. (the Alot doesn't count, because she gives blanket permission...though I won't be selling the pattern anyway). Sure, creating derivative works (in the legal sense, not in an insulting one!) is fun sometimes, and certainly creating dolls of well known characters would drive up sales and create business, but I know I have the creativity to create and market my own designs - I don't need a crutch. So from now on, I will only do original designs, or interpretations so loose that they would not fit the legal definition of "derivative."
Hope someone finds some of this helpful! Edited to add: Note that this does NOT constitute legal advice, nor does the letter that I received from the copyright office! This is only basic interpretation of copyright law, much of it by me - and I'm not even vaguely an expert. If you really plan to get involved with something like this, talk to a lawyer!!